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Voices How We Give

Can charity replace government?

Ken SternPresident
Palisades Media Ventures

Ken Stern is president of Palisades Media Ventures and the author of With Charity for All: Why Charities Are Failing and a Better Way to Give (Doubleday, 2013). He is a former chief executive officer of National Public Radio.

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The TakeawayAs governments worldwide face stringent budget cuts, we will no doubt hear calls for them to emulate the American model by looking to the voluntary sector to pick up some of the slack. Although the US model of philanthropy may have many commendable qualities, is also a cautionary example and would require substantial reinvention before it can be expected to serve as an effective replacement for lost public services.

Every year, American individuals donate more than $200 billion to charities. Tens of billions of dollars more reach US charities through foundations and other family- and individual-giving vehicles. This giving, far more in volume than any other country in the world, has engendered much praise for the generosity of the American public. Politicians, commentators, and public officials all frequently congratulate Americans for being the most generous people on earth. “In the annals of human history, there has never been a country as compassionate and generous as the United States,” wrote former US education secretary William Bennett in a 2011 essay for CNN.com. Similarly, Arthur C. Brooks of the American Enterprise Institute argues that the unique religious, cultural, and social history of the United States has spawned an especially generous people who “are truly exceptional.”

The belief that Americans give more generously to charity than citizens of other nations has a fairly strong grounding in data. So it’s tempting to think that the American model of generous private giving to the nonprofit sector might be a viable alternative to state-led social services in a world where many governments face declining revenues and draconian budget cuts. It’s not that simple, for reasons that we’ll explore below.

Who gives more?

Whose citizens give the most is a surprisingly hard number to get at because charitable-giving trends have not been studied systematically worldwide. We have extensive data on giving trends in countries like the United States and the Netherlands. In many other countries around the world, the philanthropy sector is either too nascent or too obscure to have attracted much quantitative attention.

The belief that Americans give more generously to charity than citizens of other nations has a fairly strong grounding in data.

The most comprehensive global comparative survey of voluntary giving comes from the Johns Hopkins Center for Civil Society Studies, though it is now a little dated due to its data set from 1995. The survey ranked 36 countries on percentage of giving as a share of GDP. The Johns Hopkins researchers found that Americans gave the most (at 1.85 percent of GDP), and not by a little bit—on a percentage basis, Israel was a distant second (at 1.34 percent). The highest-rated European country was Spain, at 0.87 percent. Giving levels in relatively wealthy countries such as Germany and Austria were less than one-tenth of the American total.

Although not as statistically comprehensive or rigorous, more recent surveys have also tended to support the notion that Americans are an unusually generous people. On behalf of the Charities Aid Foundation, Gallup compiles the World Giving Index, a semiregular survey that ranks countries based on whether their citizens gave to charity, volunteered for charity, or helped a stranger in the last month. Although the World Giving Index is an imperfect measure of charitable activity, the United States ranked number one in the most recent survey, in 2011—albeit by a rather small margin over Ireland, Australia, New Zealand, and Great Britain, and after finishing fifth in the first World Giving Index, released the previous year.

Devil in the details

So, Americans give more to charities. Does that imply that their system is better, or that Americans are more generous, as Brooks and Bennett would have it? Direct international comparisons are difficult for several reasons. In the United States, private charities do much of the social-sector work that Western European countries accomplish through government activity supported not by charitable giving but by tax receipts. For instance, nonprofit hospitals make up 40 percent of the charitable segment in the United States. In the United Kingdom, much of the same function is undertaken by the National Health Service, which is almost entirely funded by the British government.

Adding to the confusion, much of the funding for charitable hospitals in the United States actually comes from government grants and federal reimbursement programs like Medicare, rather than charitable gifts. In essence, public-service functions in both the United States and Britain are supported by a mix of government and private organizations and a mix of government and private funding, with the United States more inclined toward privatization and individualization of funding, and Britain more inclined toward a public and collective model. In this light, higher levels of charitable giving in the United States hardly makes a stirring case for American exceptionalism, at least compared with select Western European countries.

Hard choices

So which system is better? Should America seek to emulate the European model or vice versa? These are complex questions, but there are some interesting factors to be considered.

First, the American model of charity is surprisingly regressive. In the United States and most other countries, the tax system is progressive, with high-income groups carrying a disproportionally large share of the burden. And yet the lowest income segments of the US population give a higher percentage of their income to charity than the highest income groups. Moreover, lower-income givers tend to not get tax advantages from these gifts because they do not itemize their deductions.

Second, there does appear to be an important correlation between giving and volunteering. In addition to their financial generosity, Americans tend to volunteer their time more frequently and in greater amounts to help their neighbors and communities. It is not necessarily obvious that giving and volunteering should be statistically correlated, but it appears that they are. In the United States, volunteerism has driven a strong participatory culture that is a good measure of civic virtue.

Advocates for the American approach to philanthropy commonly argue that private charities tend to be faster to market, more closely aligned with local needs, and more innovative than government agencies. Government services are frequently criticized for being slow, bureaucratic, and ineffective—and not without warrant. Private markets, for all their limitations, are relatively efficient and creative, and they provide a competitive market where innovative organizations can flourish while outmoded groups fail.

And yet the US charitable market is surprisingly static. If you were to compare the Fortune 50 list of the biggest American companies from 40 years ago to the list today, you would see enormous changes engendered by creative destruction. Hello Apple, Google, and Microsoft; goodbye American Can, Bethlehem Steel, and Ling-Temco-Vought. In contrast, the list of the largest public charities (such as United Way, the Salvation Army, Catholic Charities USA) has barely changed at all over the same period. What about the Bill & Melinda Gates Foundations and Kivas of the world? Gates doesn’t make the list because it is a funding organization rather than an operational charity. And despite their extensive press, none of the new social ventures have achieved significant scale.

As governments in Europe and elsewhere face stringent budget cuts, we will no doubt hear calls for them to emulate the American model by looking to the voluntary sector to pick up some of the slack. Although the US model of philanthropy may have many commendable qualities, is also a cautionary example and would require substantial reinvention before it can be expected to serve as an effective replacement for lost public services.

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